What is a Journal Payroll Entry? The Definite Guide 2024

Journal payroll entry

Every business should prioritize keeping a journal payroll entry. It’s an excellent way to maintain a comprehensive record of all big and small transactions in and out of business.

Without it, it can be a challenge to monitor your expenses, ensure you account for all taxes owed, and check your sales progress.

If you want to keep things systematic in your accounting and payroll processes, then this blog is perfect for you!

Read on and you’ll learn all about a journal payroll entry, why it is essential for your operations, and how you can create one that suits your business operations best.

Key Takeaways

  • A journal payroll entry keeps records of all transactions and financial statements within a business or an organization.
  • The different types of journal payroll entries are Primary Payroll Journal Entry, Employer’s Payroll Tax Expense, Manual Payments, and Accrued Wages.
  • To create a journal payroll entry, set up the payroll accounts for wage accrual, log all deductions and labor burdens, transfer operating cash into your payroll account, settle all direct deposits and third-party payments, track all entries, and revise records as needed.
  • It is also helpful to keep your tax forms properly arranged and stored, create a separate spreadsheet for future reference, etc.

What is a Journal Payroll Entry?

A journal payroll entry is a form of record-keeping designed for businesses to manage their financial statements and transactions effectively. It enables a well-organized and complete accounting of all the different purchases and dealings related to the business’s expenses and liabilities.

Journal payroll entries are also effective in recording all compensation paid to employees. All recorded compensations and transactions are added to the business’s financial statements.

The entries can be in the form of aphysical or digital record, but what’s important is to declare all financial accounts in a general ledger.

It is critical for every company to consistently update its payroll accounting entries because it serves as a helpful reference for understanding how a single transaction, sale, or business negotiation interconnects and affects the operability of a business as a whole.

Journal Payroll Entry Types

Laptop, cellphone, notebook, and a pen

There are five main types of journal payroll entries. Each type is designed for a specific purpose. Read more about them in the following section.

#1. Primary Payroll Journal Entry

A primary payroll journal entry is used for theinitial step in recording payroll. It is a summarized version of all the accumulated information inputted into the company’s payroll register.

Employees’ gross wages, all imposed tax withholdings, and any additional deductions are recorded in a primary payroll entry. This type of entry also records the employer’s share of payroll taxes and liabilities incurred in labor expenditures, along with withheld amounts in the employee’s gross earnings for insurance and retirement benefits.

#2. Employer’s Payroll Tax Expense

Employer’s payroll tax expense keeps accounts of the tax liabilities that are focused on funding FUTA and/or SUTA (unemployment programs) as well as employee’s Social Security (survivor, retirement, and disability)and Medicare benefits.

In some states and localities, a fixed head tax may also be included in the company’s employer’s payroll tax expense. Head tax refers to a fixed amount that is charged annually per employee and is paid by their employers.

#3. Manual Payments

Manual payments are applicable when employers pay compensation or wages that are excluded from their regular payroll schedule. These payments are made by check or cash and are free of any liabilities.

It is common when an employee is laid off or if certain adjustments must be made to their salary. Since the adjustments are not included in the payroll, employers have to manually print paychecks to send the payment.

#4. Accrued Wages

Accrued wages are payroll compensation that is yet to be paid by the employer to their staff. Therefore, it is an unpaid wage for the services rendered by employees.

Since it remains unpaid, accrued wages will be categorized under accrued expenses and acknowledged within the same period when the employee fulfilled the said unpaid services.

How to Create a Payroll Journal Entry

Two employees examining payroll journal entry

Check out these simple and easy steps for creating a payroll journal entry.

#1. Set Up Payroll Accounts for Wage Accrual

It is best to create a separate account for your payroll. For example, some companies have multiple payroll accounts, hence the need to separate them from other expenses and obligations.

Having multiple payroll accounts will ensure that you input all wage payment details into the correct accounts. Always distinguish your accounts to be debited from your accounts to be credited.

The rule is to record gross wages as a debit or expense under the wages account and all money or amount owed in payroll deductions, taxes, and net pay as credit or liabilities under the wages payable account.

#2. Log All Accrued Payroll Deductions and Labor Burdens

When inputting a journal entry, make sure to add a header and a unique reference number or numerical identifier. The header contains the date when the entry was made, while the reference number enables you to easily find the specific detail.

Enumerate the following payroll deductions and labor burdens:

  • 401(k)
  • Employer expense or workers’ comp
  • Federal and state income tax withholding
  • FICA (Social Security and Medicare)
  • FUTA
  • Garnishments
  • Gross wage expense
  • Health insurance
  • SUTA
  • Vacation and sick leave

#3. Transfer Operating Account Cash Into Your Payroll Account

Now that you have identified your accrued payroll deductions, labor burdens, and all other expenses, it’s time to move cash for salaries and wages, employer and employee FICA, federal and state withholdings and 401(k) payable, health insurance, garnishments, and workers’ compensation into your payroll.

Then, leave cash in your operating account for employees’ accrued sick and vacation leaves, as these will only be deducted once employees use their paid leaves.

#4. Settle all Payments

Send both direct deposits and third-party payments. Direct deposit payments are paid for through check or cash and leave nothing to be “owed” by your business.

These are employee earnings that you deposit directly into their accounts. Third-party payments are payments you make in place of your partners and clients. An example of third-party payments is when you pay fees and expenses included in apps or platforms you use to operate your business.

#5. Track Journal Entries

Monitor the data you input into your journal entries and ensure you do not commit any errors. See to it that all information is effortlessly traceable to save time if you need to verify some of the data.

If you have multiple journal entries, you can record them in your T-account.

A T-account provides a visual or graphic presentation of your journal entries, effectively enabling your accounting and payroll teams to create a clearer image of the company’s finances and balances while simultaneously checking for any errors.

#6. Revise Your Records As Needed

Aside from tracking your journal entries and consistently recording all your payables and expenses, don’t forget to revise any errors you encounter. Check your entries and compare whether they hold the same value or are congruent with the data in your payroll account.

Moreover, your debits and credits should be balanced. Otherwise, you might have to redo your journal payroll from the start.

Tips for Payroll Journal Entries

Here are some helpful tips to help you create error-free and accurate payroll journal entries at all times:

#1. Organize Your Tax Forms

Making accurate calculations for your employee’s tax withholdings is impossible without properly managing your tax forms. Not all employees belong to the same tax bracket.

Also, what if your employee gets married and decides to file taxes jointly with their spouse? Or, they may have dependents and be eligible for child tax credits.

Any discrepancies in your tax forms lead to a string of errors in your general ledger. When hiring new staff, have them fill out the correct forms, such as their Form W-4 and Employee Withholding Certificate.

Keep employee tax forms updated. If needed, assist them in completing all the necessary documents for their employment.

For instance, you might have to verify their eligibility to work in the US. As such, checking their Form I-9 is a must to ensure you and your employee are not violating any work regulations.

#2. Keep a Spreadsheet

Create a separate spreadsheet for your journal payroll entries. It’s a great way to keep your data organized and updated.

Your spreadsheet provides a reference for when you need to check your general ledger later on, particularly when you have to verify all inputted details, compare records, and ensure all your expenses and liabilities are recorded correctly.

It will also come in handy because it is a backup for your accounts and financial data.

#3. Pay Attention to Detail

From differentiating your debits and credits to making the necessary adjustments to your liabilities and ensuring all outgoing payments are up-to-date, attention to detail is key.

A single error in your journal payroll entry could cause a huge rift in managing your business’s finances. Also, you might face penalties or complaints from employees if you do not withhold the correct tax withholdings and benefits or deposit the correct net wage.

Final Thoughts

Accuracy is a key factor in your journal payroll entry. Recording the correct values in your general ledger means preventing significant financial loss in your business.

It maintains transparency in terms of how you manage employee salaries, wages, and tax withholdings. You can hire expert personnel in the field to boost the efficiency of your accounting and payroll processes or provide additional training to your existing staff.

Lastly, use this article as your helpful guide to ensure you don’t miss out on any essential steps in creating and organizing your payroll entries.


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